"How about just going back to the old shoe-box-in-the-back-yard routine?" a friend said to me recently.
A skilled periodontist and no slouch at making decisions in his own profession, he was complaining about all the decision-making now required in managing his personal finances.
Of course the shoe box is not the solution. But he has a point--the proliferation of alternatives has complicated tremendously the selection task.
My friend was discussing specifically the choice of the best vehicle for the Individual Retirement Account for which he is now eligible. But the problem extends across the entire range of personal finances.
New kinds of life insurance, for instance, make the choice of the right policy more difficult. And new methods of examining even the old standard policies to determine their true cost have all but destroyed the once simple pleasure of "providing for your loved ones."
The plethora of certificates of deposit--for different periods at different yields with different dollar minimums--is another example of the almost overwhelming wealth of choices.
What to do--since we can't go back to yesteryear? Well, it would be nice if I could sit here at my desk and tell you which one of the many investment media available for IRAs is "the best."
But I like to believe that I have more than one reader. And even if there are just two of you out there, it is likely that there is a different "best answer" for each of you.
Because each of the many alternatives has both advantages and disadvantages, the right one for you depends on a multitude of factors unique to each individual.
In a recent series of articles on IRAs, I touched on some of these factors. For instance, if you expect the major part of your retirement income from a federal pension which is (or is supposed to be) adjusted annually for cost-of-living increases, then your IRA doesn't have to fight that battle and can go into fixed-yield investments like CDs or conservative bond funds.
On the other hand, if your company retirement plan will pay a fixed amount without cost-of-living adjustments, then your IRA should be invested in equities like common stocks to provide a possible cushion against inflation.
Your age is another factor. A 30-year-old can take greater risks than a 60-year-old, because he or she has more time for investment potential to develop and more time to make up for possible losses than one who is only four or five years from retirement.
Ownership of other assets has a bearing on your selection. If you have substantial savings now in CDs that you expect to carry into retirement, then you probably should look at equity investments for your IRA.
Conversely, if you are active in the stock market and own a portfolio of common stocks, then for balance and diversification your IRA money might go into some form of fixed-yield investment.
Perhaps the most important single factor is your tolerance for risk. There is no point considering a high-risk investment if it will cost you peace of mind.
And don't let well-meaning friends convince you that your money is in the wrong place. The crucial element of an investment is whether you're comfortable with it.
Do all these words point to a way to simplify the job of picking the right IRA investment? Analyze yourself first; looking at all the personal factors may permit you to discard many of the alternatives out of hand.
Then you can concentrate on the ones that are left. And remember: If you end up with two or three investments that meet your particular needs, you don't have to choose among them. You can have them all--because you are permitted to own more than one IRA, as long as the total invested each year doesn't exceed the legal ceiling.